SMSF Property investments using a related unit trust

An SMSF is prohibited from acquiring assets from a related party, except in limited circumstances. One of those circumstances is where the investment is an ‘in-house asset’.

SMSFs are limited to investing 5 per cent of the fund’s total assets in in-house assets, and where this limit is breached the fund trustee must bring the investment back within the 5 per cent limit within 12 months after the year of the breach being identified.

An exclusion from the in-house asset rules is an SMSF’s investment in a related unit trust – so long as the unit trust always complies with the regulatory requirements contained in Division 13.22C and 13.22D of the SIS Regulations.

There are number of requirements which the unit trust must satisfy to enable the investment to comply with the in-house asset exception. These are broadly as follows:

the trustee of the unit trust must not be party to a lease with a related party to the SMSF, unless the lease relates to business real property;

•  the trustee of the unit trust must not have outstanding borrowings;
•  the unit trust must not have an interest in another entity (for example, it cannot invest in listed or unlisted securities);
• the unit trust must not lend to another entity, unless the loan is a deposit with an authorised deposit taking institution within the meaning of the Banking Act 1959;
• the unit trust must not have an asset which is subject to a charge;
• the unit trust must not have assets acquired from a related party of the SMSF after 11 August 1999 (apart from money or business real property acquired at market value);
• the unit trust must not have assets that had been at any time (apart from money or business real property acquired at market value) an asset of a related party of the SMSF in the previous three years before the day on which the SMSF first invested in the unit trust;
• the trustee of the unit trust must not conduct a business; and
• the trustee of the unit trust must not conduct a non-arm’s length transaction.

If any of the conditions in Regulation 13.22C are not satisfied, the SMSF’s units in the unit trust will be treated as an in-house asset of the SMSF and the in-house exception in Regulation 13.22C cannot be subsequently applied even if the breach is rectified.

How Superhelp can Help

SuperHelp can help you in the setup and annual administration of your SMSF so you can start investing in property today.

Please call us for more information on 1300 736 453.